Nikkei flat as North Korea fears recede; financial stocks tumble

TOKYO, Aug 10 (Reuters) - Japanese stocks were flat in choppy trade on Thursday morning as geopolitical concerns over North Korea’s threats of missile strikes receded.

Financial stocks underperformed after U.S. Treasury yields fell as bond prices rose in a flight to safety by nervous investors.

Trade was subdued before a three-day weekend starting on Friday. The Nikkei was flat at 19,736.72 by the midday break, after it traded in positive territory in early trade.

The benchmark index tumbled 1.3 percent on Wednesday to hit the weakest closing level since May 31 in the wake of U.S. President Donald Trump’s “fire and fury” warning to North Korea.

Investors had sold riskier assets after strongly worded exchanges between Washington and North Korea late on Tuesday. But U.S. Secretary of State Rex Tillerson said he did not believe there was an imminent threat.

Excessive geopolitical fears surrounding North Korea seemed to have receded, traders say, but activity is expected to stay subdued with Japanese markets closed on Friday.

“The market has calmed down a bit, as they remember that the market did not suffer a major damage in April after North Korea filed a missile,” said Hiroyuki Nakai, chief strategist at Tokai Tokyo Research Center.

But he said that investors remained wary of events that could spike volatility in the foreign exchange market on the holiday Friday.

“The dollar-yen’s downside is expected above 108 yen for now. Most Japanese companies expect the pair to trade between 108-110 yen this fiscal year. But if it drops below 108 yen, the Nikkei will likely fall to around 19,100,” Nakai said.

The dollar was flat at 110.08 yen on Thursday, up from Wednesday’s low of 109.56 yen, which was the dollar’s lowest level since June 15.

Insurers and banks, which invest in higher-yielding products such as foreign bonds, were the two worst performers on the board after U.S. Treasury yields fell on Wednesday, with the yields on the benchmark 10-year note hitting a six-week low.

Cosmetics maker Shiseido Co soared 14.5 percent after it raised its operating profit outlook to 56 billion yen from 45.5 billion yen for the year through December thanks to strong sales in high-end cosmetics.

The company also raised its annual dividend forecast to 25 yen from 20 yen per share.